B-171878, AUG 8, 1974, 54 COMP GEN 93

B-171878, AUG 8, 1974, 54 COMP GEN 93

OFFICERS AND EMPLOYEES - TRANSFERS - RELOCATION EXPENSES - TAXES CIVILIAN EMPLOYEE OF ARMY CORPS OF ENGINEERS SEEKS REIMBURSEMENT OF NEW MEXICO GROSS RECEIPTS AND COMPENSATING TAX LEVIED IN CONNECTION WITH HIS PURCHASE OF A NEWLY CONSTRUCTED RESIDENCE INCIDENT TO TRANSFER. REIMBURSEMENT MAY NOT BE MADE SINCE TAX IS A BUSINESS PRIVILEGE TAX, AND THE FACT THAT EMPLOYEE MAY DEDUCT TAX ON INCOME TAX RETURN DOES NOT ALTER THE NATURE OF TAX. THE TAX IS NOT ASSESSED ON CASUAL SALE OF PREVIOUSLY OCCUPIED HOME AND, THEREFORE, IS NOT A TRANSFER TAX WITHIN MEANING OF SECTION 2-6.2D OF FEDERAL TRAVEL REGULATIONS, FPMR 101-7. ADDITIONALLY, REGULATION PROHIBITS REIMBURSEMENT OF EXPENSES THAT ARE ASSOCIATED ONLY WITH CONSTRUCTION OF A RESIDENCE. B-174335, DECEMBER 8, 1971, OVERRULED.

IN THE MATTER OF RELOCATION EXPENSES AND CERTAIN TAXES, AUGUST 8, 1974:

THIS MATTER INVOLVES A REQUEST FOR AN ADVANCE DECISION SUBMITTED BY THE FINANCE AND ACCOUNTING OFFICE, ALBUQUERQUE DISTRICT, CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY, CONCERNING THE PROPRIETY OF REIMBURSING A CIVILIAN EMPLOYEE, MR. ARTHUR G. CUDWORTH, JR., FOR THE NEW MEXICO STATE "SALES TAX" THAT HE PAID WHEN HE PURCHASED A NEW HOME INCIDENT TO HIS TRANSFER TO ALBUQUERQUE, NEW MEXICO.

BY TRAVEL ORDER NUMBER E80-74-0141, MR. CUDWORTH WAS TRANSFERRED FROM THE SOUTH PACIFIC DIVISION, CORPS OF ENGINEERS, SAN FRANCISCO, CALIFORNIA, TO ALBUQUERQUE. INCIDENT TO THIS TRANSFER, HE PURCHASE A NEW HOME, WITH THE SETTLEMENT OCCURRING ON NOVEMBER 26, 1973. ON DECEMBER 13, MR. CUDWORTH WAS ADVISED, BY A LETTER FROM MR. C.R. ZIMMERMAN OF CHARTER BUILDING AND DEVELOPMENT CORPORATION, THAT THE PURCHASE PRICE OF HIS HOME INCLUDED A "SALES TAX" OF $1,259.61 WHICH MR. CUDWORTH COULD USE AS A DEDUCTION IN FILING HIS PERSONAL INCOME TAX RETURN. WHEN MR. CUDWORTH SUBMITTED HIS "APPLICATION FOR REIMBURSEMENT OF EXPENSES INCURRED BY DOD CIVILIAN EMPLOYEE UPON SALE OR PURCHASE (OR BOTH) OF RESIDENCE UPON CHANGE OF DUTY STATION" (DD FORM 1705), UNDER 5I., "SALES OR TRANSFER TAXES; MORTGAGE TAX, IF ANY," HE LISTED THE AMOUNT OF THE "SALES TAX" THAT HE PAID. HAVE BEEN INFORMALLY ADVISED BY MR. ZIMMERMAN THAT THIS TAX IS COMPUTED BY SUBTRACTING THE VALUE OF THE LAND FROM THE TOTAL PRICE OF THE HOME, BEFORE MULTIPLYING BY THE APPLICABLE RATE, 4 PERCENT. IN ADDITION, WE UNDERSTAND THAT THE TAX IS LEVIED ON A NEWLY CONSTRUCTED HOME SOLD BY A CONTRACTOR, BUT NOT ON A HOME THAT HAS PREVIOUSLY BEEN OCCUPIED, WHICH IS TRANSFERRED THROUGH A "CASUAL" SALE BY A PRIVATE INDIVIDUAL.

AT THE TIME OF MR. CUDWORTH'S TRANSFER, PAYMENT OF TRAVEL AND RELOCATION EXPENSES OF CIVILIAN GOVERNMENT EMPLOYEES WAS GOVERNED BY THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7, MAY 1973. SECTION 2-6.2D PROVIDES, IN PERTINENT PART:

MISCELLANEOUS EXPENSES. THE FOLLOWING EXPENSES ARE REIMBURSABLE WITH RESPECT TO THE SALE AND PURCHASE OF RESIDENCES IF THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE AT THE OLD OFFICIAL STATION OR IF THEY ARE CUSTOMARILY PAID BY THE PURCHASER OF A RESIDENCE AT THE NEW OFFICIAL STATION, TO THE EXTENT THEY DO NOT EXCEED AMOUNTS CUSTOMARILY PAID IN THE LOCALITY OF THE RESIDENCE: *** MORTGAGE AND TRANSFER TAXES, *** IN CASES INVOLVING CONSTRUCTION OF A RESIDENCE, REIMBURSEMENT OF EXPENSES WOULD INCLUDE THOSE ITEMS OF EXPENSE WHICH ARE COMPARABLE TO EXPENSES THAT ARE REIMBURSABLE IN CONNECTION WITH THE PURCHASE OF EXISTING RESIDENCES AND WILL NOT INCLUDE EXPENSES WHICH RESULT FROM CONSTRUCTION.

IF THE TAX PAID BY MR. CUDWORTH CAN BE CLASSIFIED AS A TRANSFER TAX, IT MAY BE REIMBURSABLE UNDER THE REGULATION.

IN ORDER TO DETERMINE WHETHER OR NOT A PARTICULAR TAX IS A "TRANSFER TAX," IT IS POSSIBLE TO EXAMINE EACH TAX FROM TWO DIFFERENT PERSPECTIVES. A TAX CAN BE ANALYZED BY EXAMINING ITS IMPACT ON THE INDIVIDUAL TAXPAYER, FOLLOWED BY THE APPLICATION OF A SINGLE NATIONAL STANDARD, NO MATTER HOW THE TAX MAY BE CHARACTERIZED BY THE TAXING AUTHORITY. ON THE OTHER HAND, THE ESSENTIAL NATURE OF THE TAX, AS CONSTRUED BY APPROPRIATE STATE OR LOCAL AUTHORITIES, CAN BE EXAMINED TO SEE IF IT IS, IN FACT, A TAX ON THE TRANSFER ITSELF. IN THE LATTER CASE, THERE MAY BE VARIATIONS IN HOW TAXES FROM DIFFERENT AREAS, THAT ARE OSTENSIBLY THE SAME, ARE TREATED. THROUGHOUT THE SECTIONS OF FPMR 101-7 THAT DEAL WITH THE REIMBURSEMENT OF REAL ESTATE EXPENSES, THE REFERENCES AND STANDARDS ARE RELATED TO LOCAL CONSTRUCTIONS OF THE VARIOUS EXPENSES. IN THE SECTION QUOTED ABOVE, THE STATED EXPENSES ARE PAYABLE IF:

... THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE AT THE OLD OFFICIAL STATION OR IF THEY ARE CUSTOMARILY PAID BY THE PURCHASER OF A RESIDENCE AT THE NEW OFFICIAL STATION ...

CLEARLY THIS CALLS FOR AN EXAMINATION OF LOCAL PRACTICES. BY APPLYING THE SAME STANDARDS TO THE ANALYSIS OF A POSSIBLE TRANSFER TAX, IT BECOMES READILY APPARENT THAT THE CHARACTERIZATION GIVEN A PARTICULAR TAX BY THE APPROPRIATE STATE OR LOCAL AUTHORITIES MUST BE CONTROLLING.

THE NEW MEXICO "SALES TAX" IS LEVIED UNDER NEW MEXICO STATUTES ANNOTATED, SECTION 72-16A-1, ET SEQ. SECTION 72-16A-2 PROVIDES:

PURPOSE - THE PURPOSE OF THE GROSS RECEIPTS AND COMPENSATING TAX ACT (72- 16A-1 TO 72-16A-19) IS TO PROVIDE REVENUE FOR PUBLIC PURPOSES BY LEVYING A TAX ON THE PRIVILEGE OF ENGAGING IN CERTAIN ACTIVITIES WITHIN NEW MEXICO AND TO PROTECT NEW MEXICO BUSINESSMEN FROM THE UNFAIR COMPETITION THAT WOULD OTHERWISE RESULT FROM THE IMPORTATION INTO THE STATE OF PROPERTY WITHOUT PAYMENT OF A SIMILAR TAX.

THIS TAX WAS ENACTED IN 1966, AND THERE ARE NO ANNOTATIONS TO THE STATUTE THAT DEALS WITH THE ESSENTIAL NATURE OF THE TAX. HOWEVER, IT IS CLEAR ON THE FACE OF THE STATUTE THAT IT IS A TAX ON THE PRIVILEGE OF DOING BUSINESS IN THE STATE OF NEW MEXICO. THIS INTERPRETATION IS CONFIRMED BY SECTION 72-16A-4, WHICH PROVIDES:

A. FOR THE PRIVILEGE OF ENGAGING IN BUSINESS, AN EXCISE TAX EQUAL TO FOUR PER CENT (4%) OF GROSS RECEIPTS IS IMPOSED ON ANY PERSON ENGAGING IN BUSINESS IN NEW MEXICO.

B. THE TAX IMPOSED BY THIS SECTION SHALL BE REFERRED TO AS THE "GROSS RECEIPTS TAX."

THIS PRIVILEGE TAX IS SPECIFICALLY IMPOSED ON A PERSON "ENGAGING IN BUSINESS," NOT ON THE ULTIMATE CONSUMER. THE FACT THAT THE TAX MAY BE DEDUCTED ON THE PURCHASER'S PERSONAL INCOME TAX RETURN DOES NOT CHANGE THE ESSENTIAL NATURE OF THE TAX. IT IS IMPOSED ON THE PRIVILEGE OF DOING BUSINESS, NOT ON THE TRANSFER. THIS POSITION IS SUPPORTED BY THE FACT THAT THIS SAME TAX IS NOT IMPOSED ON THE CASUAL SALE OF A HOME THAT HAS PREVIOUSLY BEEN OCCUPIED. THEREFORE, WE CANNOT SAY THAT THE NEW MEXICO GROSS RECEIPTS AND COMPENSATING TAX IS A TRANSFER TAX WITHIN THE MEANING OF SECTION 2-6.2D OF FPMR 101-7.

IN B-174335, DECEMBER 8, 1971, WE CONSIDERED THE AUTHORITY FOR THE REIMBURSEMENT OF A SIMILAR TAX PROVISION IN THE STATE OF ARIZONA. THERE, THE EMPLOYEE PURCHASED A MOBILE HOME THAT WAS TO BE USED AS A RESIDENCE AT HIS NEW DUTY STATION IN ARIZONA. AT THE TIME OF PURCHASE, A TAX WAS LEVIED UNDER TITLE 42, SECTION 1309, OF THE ARIZONA REVISED STATUTES. THAT SECTION DESCRIBED THE TAX AS A "PRIVILEGE TAX" TO BE ASSESSED AGAINST "GROSS PROCEEDS OF SALES, OR GROSS INCOME." THIS CHARACTERIZATION WAS CONFIRMED BY THE SUPREME COURT OF ARIZONA IN STATE TAX COMMISSION V. CONSUMERS MARKET, INC., 87 ARIZ. 376, 351 P.2D 654 (SUP. CT. 1960) AND INDUSTRIAL URANIUM CO. V. STATE TAX COMMISSION, 95 ARIZ. 130, 387 P.2D 1013 (SUP. CT. 1963). IN THOSE CASES, THE COURT SPECIFICALLY HELD THAT THE TAXABLE EVENT WAS NOT THE SALE OF GOODS, BUT WAS THE DOING OF BUSINESS IN ARIZONA. IN B-174335, SUPRA, WE ANALOGIZED THIS TAX TO A "USE TAX" IMPOSED UPON THE REGISTRATION OF A VEHICLE OR MOBILE HOME WHEN IT IS BROUGHT INTO A STATE OTHER THAN THE ONE IN WHICH IT WAS PURCHASED. IN SO DOING, WE DEPARTED FROM THE STRICT APPLICATION OF THE LOCAL INTERPRETATION OF TAX LAWS, AND ATTEMPTED TO VIEW THE TAX FROM THE PERSPECTIVE OF ITS IMPACT ON THE EMPLOYEE. THEREFORE, B-174335, DECEMBER 8, 1971, WILL NO LONGER BE FOLLOWED.

IN THE INSTANT CASE, THERE IS NO EQUIVALENT TO THE "USE TAX," SO THE ESSENTIAL NATURE OF THE BUSINESS PRIVILEGE TAX BECOMES CLEAR, AND IT BECOMES READILY APPARENT THAT A BUSINESS PRIVILEGE TAX, STANDING ALONE, IS NOT A TRANSFER TAX, AND CANNOT BE REIMBURSED UNDER THE PROVISIONS OF OFFICE OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56, SECTION 4.2D, AND FPMR 101-7, SECTION 2-6.2D.

AS NOTED ABOVE, THE TAX INVOLVED HERE WILL NORMALLY ONLY BE ASSESSED INCIDENT TO THE PURCHASE OF A NEWLY CONSTRUCTED RESIDENCE. IN FPMR 101 7, SECTION 2-6.2D, IT IS SPECIFICALLY STATED THAT IN A CASE INVOLVING CONSTRUCTION OF A NEW RESIDENCE, ONLY THOSE COSTS THAT WOULD ALSO BE INCLUDED IN THE PURCHASE OF AN EXISTING RESIDENCE MAY BE REIMBURSED. ANY EXPENSES RESULTING FROM CONSTRUCTION MAY NOT BE REIMBURSED. IN THIS CONNECTION, WE HAVE HELD THAT, IN RELATION TO THE CONSTRUCTION OF A RESIDENCE, THERE COULD BE NO REIMBURSEMENT FOR THE COST OF: ARCHITECT'S PLANS, B-164926, SEPTEMBER 30, 1968; WATER AND SEWER HOOK UPS, B-165879, FEBRUARY 7, 1969; CONSTRUCTION LOAN FEES CHARGED IN ADDITION TO NORMAL MORTGAGE FEES, B-164452, JULY 2, 1968, AND B-164938, AUGUST 26, 1968; AND A SALES TAX, B-164491, AUGUST 20, 1968. IN THE INSTANT CASE, THE "PRIVILEGE TAX" WAS ASSESSED AGAINST THE CONTRACTOR THAT BUILT THE HOUSE. IT WAS A CHARGE INCIDENT TO THE CONSTRUCTION OF A NEW RESIDENCE, AND IS THEREFORE NOT REIMBURSABLE.

ACCORDINGLY, MR. CUDWORTH'S TRAVEL VOUCHER, WHICH WILL BE RETAINED, MAY NOT BE CERTIFIED FOR PAYMENT.